Bitcoin and the Stock-to-Flow Model: Why Does Scarcity Determine Value?

When Bitcoin first appeared in 2009, no one could have imagined that a digital currency without a physical form would become a store of value competing with gold. Today, Bitcoin is the leading cryptocurrency, having survived numerous cycles of boom and bust, reaching peaks above $69,000 (November 2021), and occasionally plunging into bear markets.

But what explains this volatility and predicts future prices? The answer lies in the Stock-to-Flow model – an analytical tool that brings classical economics into the world of cryptocurrencies.

Why specifically Stock-to-Flow? The Fundamentals of Scarcity

Stock-to-Flow (S2F) is not a new invention. Originally, economists applied this model to assess precious metals, especially gold and silver. The principle is simple: the greater the scarcity of a commodity, the higher its value.

The model operates with two key parameters:

• Stock (Stock) – the total amount of Bitcoin already mined and in circulation
• Flow (Flow) – the rate of new coin creation, measured by the annual mining volume

The formula is straightforward: S2F = Stock ÷ Flow

The higher this ratio, the more scarce the asset is considered. Gold has a high S2F coefficient – which is why it is valued. Bitcoin embodies this same logic.

How Bitcoin Becomes Increasingly Scarce

Bitcoin differs fundamentally from traditional currencies by a simple fact: its total supply cannot exceed 21 million coins. This hard cap is embedded in the network’s code.

But there is another mechanism that makes Bitcoin exponentially more scarce – halving. Approximately every four years, the miners’ reward for creating blocks is cut in half. This means the flow of new Bitcoin slows down, and the S2F ratio increases.

For example:

• After each halving, the flow of new coins decreases
• The stock remains unchanged
• The S2F ratio increases
• According to the model, this should lead to a price increase

Historically, this logic has held. After halvings, significant price rallies often followed.

Data and Predictions: What Does S2F Show Now?

As of the end of 2025, the current Bitcoin price is $87.21K, but the S2F model suggests that in the long term, the price could rise significantly.

The creator of the PlanB model forecasted:

• $55,000 after the 2024 halving (already occurred)
• Potentially $1 million by the end of 2025

Other experts, such as Hal Finney, estimated 1 BTC at $10 million, and ARK Invest predicts $1 million by 2030. The range of estimates is vast – but all are based on the same logic: scarcity plus rising demand equals price growth.

The chart shows that Bitcoin’s price has followed the S2F line quite consistently, with some periods of extreme movement. Long-term investors value this consistency.

Factors Affecting S2F Beyond Halving

The Stock-to-Flow ratio is not the only factor influencing Bitcoin’s price:

Mining difficulty – the network automatically adjusts every two weeks to maintain a consistent block creation time. Changes in difficulty directly impact the rate of new Bitcoin entering circulation.

Adoption level – institutional investors, retail investors, companies adding BTC to reserves – all increase demand with unchanged supply.

Regulatory environment – strict or favorable rules from governments can dramatically alter demand dynamics.

Technological progress – improvements in Bitcoin’s scalability and security influence its usability and, consequently, demand.

Cryptocurrency trends – emergence of altcoins with supposedly better technology, panic selling, waves of demand for alternative assets.

Macroeconomic climate – inflation, currency devaluation, geopolitical events – all can push investors toward Bitcoin as a hedge.

It’s important to remember: the S2F model is one of many tools, not a universal predictor of the future.

Criticism of the Model: Why Not Everyone Believes in S2F

The model has faced serious criticism from prominent figures in the crypto world.

Vitalik Buterin, co-founder of Ethereum, called it “not very good” and “harmful” due to potentially inaccurate forecasts. His critique is that the model oversimplifies demand and supply dynamics.

Adam Back (CEO of Blockstream) sees it as a reasonable fit to historical data but agrees it’s just one variable.

Cory Klippsten (Swan Bitcoin) and Alex Kruger (cryptotrader and economist) outright reject S2F as a tool for future prediction, calling it “meaningless” for these purposes.

Nico Cordeiro (Strix Leviathan) criticizes the core assumptions of the model, pointing out that it insufficiently accounts for market demand and broader economic conditions.

Main Limitations of the Model

1. Ignoring external factors – the model focuses solely on scarcity, neglecting developments like Lightning Network, legislative changes, economic cycles, and investor sentiment.

2. Past does not guarantee future – although S2F correlated with Bitcoin’s price in the past, this does not mean it will be accurate in the future. The crypto market is too complex.

3. Overestimating the role of scarcity – Bitcoin’s usefulness as a payment medium, ecosystem development, and other factors may have a greater impact than scarcity alone.

4. Risk of misinterpretation – novice investors might rely too heavily on the model’s forecasts without considering its limitations and market volatility risks.

How to Use S2F in Investing

If you decide to apply the Stock-to-Flow model in your strategy, follow these rules:

Don’t base decisions solely on it – the model works best for long-term investors who are not concerned with short-term fluctuations. For traders, it’s less useful.

Diversify your analysis – combine S2F with technical analysis, fundamental indicators, and market sentiment analysis. Keep an eye on macroeconomics.

Manage risks – set stop-losses, properly size your positions, and be prepared for volatility.

Stay informed – changes in regulation, technological updates, macro trends – all can alter the model’s forecasts.

Regularly review your strategy – the crypto market evolves rapidly. Adapt your approach to new information.

How Accurate Is the Model Really?

Answer: It depends on the time horizon.

Over long-term horizons (2-4 years around halving), S2F shows a significant correlation with Bitcoin’s price. The model correctly predicted major rallies after the 2012 and 2016 halvings.

However, over shorter periods and in some cycles, the model has been wrong. For example, the forecast of $100,000 in the last cycle did not fully materialize.

Fact: past performance does not guarantee future results. This applies to the S2F model as well.

Conclusion: Stock-to-Flow is Part of the Puzzle, Not the Whole Puzzle

Bitcoin’s future will be determined by a combination of factors: demand dynamics, technological progress, regulatory policies, ecosystem development, and, yes, scarcity.

The S2F model provides a useful framework for understanding why scarce assets tend to appreciate. But it’s not a crystal ball.

Use S2F as one of many tools in your analytical arsenal. Combine it with other models, analysis, and common sense. This way, your investment decisions will be better grounded than relying on a single theory.

Investor reminder: scarcity matters, but it’s not everything. Demand, utility, ecosystem, regulation – all together shape Bitcoin’s value.